Messy Financials Are a Red Flag for Buyers
Thinking about selling your business? Buyers don’t just look at your products, brand, or customer base. To minimize risk, they dive deep into your financial records.
If your books aren’t in order and your finances are messy, you might scare off potential buyers or be forced to sell below market value. Follow these five critical steps to ensure your financial records stand up to scrutiny.
5 Steps to Organize Your Books
1. Clean Up Your Financial Statements
Your financials tell the story of your company’s health. Buyers expect accurate, up-to-date reports, including:
- Profit and Loss Statements (P&L): At least three years of detailed reports showing revenue, expenses, and profitability trends.
- Balance Sheets: A snapshot of your company’s assets, liabilities, and equity.
- Cash Flow Statements: Insights into how cash moves in and out of the business.
2. Ensure Tax Compliance
We have seen buyers walk away from deals because of tax inconsistencies. To avoid potential deal-breakers, align tax returns with internal financial statements. Discrepencies can deter buyers, and reviewed financials add credibility. Prepare the last three years of tax returns and address any outstanding issues before due diligence begins.
3. Reconcile Accounts and Debts
Unresolved debts or discrepancies create uncertainty. Buyers want a clear picture of your cash flow and liabilities. Reconcile outstanding receivables and debts to avoid any surprises during the sale process and after closing.
4. Separate Personal and Business Expenses
5. Work With a Professional
Final Thoughts
Preparing your financials may seem daunting, but it’s a crucial step in successfully selling your business. Clean records instill buyer confidence, streamline the sale process, and help you secure the best possible price.
According to the Exit Planning Institute, more than 70% of business owners who sold their business regret the decision within a year of the sale.
With careful planning, and considering personal, financial, and business factors, you can leave your business regret-free. Our firm offers exit readiness coaching to help you prevent the pitfalls of exit regret.
To start, take our free PreScore questionnaire or contact us for an introductory consultation.